Example 35

Amrita took a personal loan from Citi bank for Rs 8 lakh to buy a new car for Rs 9.5 lakh on 1.07.2016. When she lost her job, Amrita fell behind on her repayments and the bank issued default notice giving her 30 days time to repay the default amount. Amrita again not able to repay the overdue amount and bank repossessed the car on 28.08.2017. Lender bank sold the car repossessed through auction for Rs. 7.5 lakh. The issue arises whether bank liable to pay GST on sale of second hand goods as in business of dealing in such goods. If yes then what will be the value for charging GST.

Ans.

The issue that arises for consideration is firstly, whether disposal of repossessed assets by a bank/ NBFC constitutes a sale by the bank/ NBFC and secondly, whether banks and NBFCs involved in sale of repossessed assets qualify as 'dealers' for the purposes of applicable State VAT law. The Court in the case Citi Bank v. Commissioner of Sales Tax, 2015  concluded that sale of repossessed vehicles would qualify as the Bank's 'business' and the bank would qualify as a 'dealer' for the purposes of DST Act.

The sale of second hand goods by bank for recovery of loan is for furtherance of business and is covered under the scope of supply in GST under section 7. Now in GST proviso to Rule 32(5)(Determination of value in respect of certain supplies ) of Chapter-IV CGST Rules, specifically provides for the manner of determination of purchase price in case of repossessed or second hand goods for calculation of value of supply. According to this proviso purchase price of car is deemed as purchase price of car for Amrita i.e. Rs. 9.5 lakh reduced by 5% point  for each quarter or part from 1.07.2016 to 28.08.2017 i.e. for 5 Quarters. Thus purchase price is Rs. 9.5 lakh -25% of 9.5 lakh = Rs. 712500 

Value of Supply = sale price- purchase price

                          = Rs. 750000- Rs. 712500

                         = Rs. 37500 on which GST would be discharged.